AOT in Talks with King Power Over Duty-Free Contracts Amidst Revenue Concerns

AOT and King Power are negotiating the future of five airport duty-free contracts, with the retailer proposing reduced payments due to unforeseen external factors impacting business

 

Airports of Thailand (AOT) is currently in discussions with King Power to clarify why the duty-free giant recently sought to terminate its contracts across five Thai airports.

 

This comes as King Power asserts that a significant shift in circumstances, driven by external factors beyond its control, has adversely affected its business, causing performance to fall short of original forecasts.

 

The company has indicated that a reduction in the agreed benefit payments would be a preferable outcome to ending the contracts and initiating a fresh bidding process.

 

Deputy Prime Minister and Minister of Transport, Suriya Juangroongruangkit, confirmed that he has been informed of King Power Duty Free Co. Ltd.'s letter to AOT.

 

He has instructed AOT to handle the matter with the utmost care, ensuring the interests of the nation and the government remain protected.

 

Should the discussions conclude with a need to amend the contract details, AOT has confirmed that Cabinet approval will not be required.

 

This is because the agreements are not classified as joint ventures between the state and private entities under the 2019 Joint Venture Act.
  

King Power Cites Global Disruptions

Sources within AOT revealed that a meeting with King Power took place yesterday, June 17, with Sombat Dechapanichkul, Vice Chairman of the Executive Board of King Power Group, representing the company.

 

The meeting aimed to understand the impact on the duty-free business and the rationale behind King Power's letter to AOT, specifically outlining their demands. AOT will use these insights to explore potential solutions.

 

AOT has learned that King Power attributes the business disruption to several uncontrollable external factors.

 

These include the global economic downturn, the COVID-19 pandemic, ongoing conflicts, and a sharper-than-expected decline in tourist numbers compared to AOT's forecasts during the 2019 duty-free bidding.

 

Consequently, the benefit payments initially offered by King Power are no longer aligned with the current market realities, placing a continuous financial burden on the company.

 

 

Reduced Payments: A Mutual Path Forward?

While initial communication suggested termination, current assessments indicate King Power's primary goal isn't to cancel the contracts outright. Instead, they seek a renegotiation of terms to ensure the business remains viable.

 

They argue that continuing operations under the changed circumstances while maintaining the original payment structure would lead to sustained losses and could ultimately force them to cease operations.

 

This prompted their letter to AOT, seeking a path forward or outlining the necessary procedures and contractual conditions if termination were unavoidable.
  

AOT, too, is not inclined to terminate its agreements with King Power. As such, the proposed reduction in King Power's benefit payments is currently considered a fitting compromise.

 

AOT will now meticulously examine passenger volumes and assess new return rates that accurately reflect the present situation before re-engaging in negotiations with King Power.

 

Crucially, AOT must also ensure that the government does not suffer any financial disadvantage from such adjustments.

 


"Adjusting the benefit payments is certainly a good solution, but it must be clear that this option won't put AOT at a disadvantage compared to holding a new tender," an AOT source stated. "Therefore, we need to comprehensively assess whether other private entities would still be interested in submitting proposals for the duty-free business and if a new auction would generate greater returns. AOT aims to conclude this study within the next 60 days."


 

 

Contract Adjustments: Business as Usual?

AOT clarifies that it manages over a thousand contracts with various operators and has a history of negotiating contract amendments.

 

Therefore, King Power's request for renegotiation due to changing circumstances is not an unprecedented or unmanageable situation.

 

However, given the substantial value of the King Power contract, a thorough and detailed study is paramount. AOT also confirmed that the contract with King Power includes an attached clause allowing for negotiations in the event of force majeure.

 

Furthermore, terminating the contract with King Power would necessitate a significant timeframe for drafting new tender documents, attracting new bidders, and allowing successful companies to prepare and refurbish the retail spaces.

 

This entire process is expected to take over six months, leaving airport terminals without duty-free shops during that period. This factor must also be weighed in terms of its impact on AOT and the service provided to passengers.

(2025/06/18-00:00)